What does 2017 hold for the Chinese property market?

The Chinese property market has been in the news over the last few years due to extreme volatility after a period of very strong growth. Even though the official data for the Chinese economy suggests it will continue to grow in 2017 not all economists believe the official figures. So, what does 2017 hold for the Chinese property market?

Economic stability

The ruling government in China has been waxing lyrical on the topic of economic stability during 2016. Experts are predicting a reduction in economic growth across China in 2017 but it should still be somewhere in the region of 6.5%. While this is a reduction from the 6.7% expected for the calendar year 2016, if next year’s prediction comes true this would be the lowest economic growth in China for more than 25 years.

It is difficult to say whether the Chinese government is finally being realistic with regards to economic data or we are going through a fundamental change in the structure of the Chinese economy. However, indications are that we will see significant reform across many different areas including reducing the excessive housing inventory seen in some parts of the country.

Chinese property market

When looking at the Chinese property market it can be misleading to look at general figures because there is enormous variation across the region. In some of China’s largest cities we have prices pushing to levels which are quite frankly unsustainable. While in other areas of China there is excess housing inventory with the authorities buying up some properties and reselling them, at a loss, to the local community. So, you can see how difficult it can be to calculate a general consensus when part of the market is effectively dictated by capitalism and the other is dictated by socialism.

It was however interesting to see the government will take a different approach to property market regulations by introducing new: –

The idea is that the Chinese government will take a more long-term approach to the housing market and create a mechanism that “provides housing for all people”.

Investor confidence

Investor confidence is most certainly the “elephant in the room” because the more the Chinese government meddles in capitalist markets the less investors trust the politicians. While in some ways the Chinese real estate market is still going through a transitional period, from socialist to capitalist principles, the government is not helping the situation. The very fact that the authorities were recently buying up unwanted properties and selling them to the local community at a loss, to stimulate economic activity, does not go down well with investors. Selling properties at a discount to the market price will eventually drag down the “market price”.

In the future it will be interesting to see whether the Chinese government is more sympathetic to the plight of both domestic and overseas investors in the Chinese real estate market. Will we see greater transparency in the economic data released by the government which is often discounted by some investors?

There is scope to be optimistic in the longer term but it is a very difficult process, trying to persuade the Chinese government to release its iron grip on all investment markets and the economy.